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You are given the following short-term interest rates in a Black-Derman-Toy binomial tree: r0 = 0.05, rd = 0.04, ru = 0.09, rdd = 0.06, ruu = 0.18, rddd = 0.04, ruud = 0.16. A year-4 floorlet has a strike rate of 0.07. The floorlet has a notional amount of $100. What is the current value of this floorlet?
Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years. What if you use the geometric average growth rate?
Small Corporation would like to forecast the value of the Cyprus pound (CYP) five years from now using forward rates. Unfortunately, Small is unable to obtain quotes for five year forward contracts. However, Small observes that the five year interest..
The Final Paper will involve applying the concepts learned in class to an analysis of a company using data from its annual report. Using the concepts from this course, you will analyze the strengths and weaknesses of the company and write a report re..
If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a yield to maturity (YTM) of 4.201%, what should be its price in the bond market (ie, PV)?
Using the Black-Scholes model, explain what happens to the value of a call as S, T, and s2 change. Why is the relationship between risk and price different for options than for other securities?
Suppose that Blake wants to pay his premium annually during the policy term. How much will the annual premium be?
The CEO of the insurance company you work for sends back the firm’s proposed budget which you had drafted, asking you to explain how this budget supports the firm’s strategies and goals. Discuss how you might demonstrate that your proposed budget is ..
Consider a one year American call option on 100 ounces of gold with a strike of $1200 per ounce. The spot price per ounce of gold is $1210 and the annual financing rate is 4% on a continuously compounded basis. How would you hedge a short position in..
Hawaiian Coconut Milkshakes Inc. is considering the following project. They would like to expand and add a pineapple branch. The firm has paid $95,000 to a consultant in order to find out more about the available projects and possibilities. Calculate..
Come and Go Bank offers your firm a discount interest loan with an interest rate of 10 percent for up to $26 million, and in addition requires you to maintain a 2 percent compensating balance against the face amount borrowed. Required: What is the ef..
Genetic Insights Co. purchases an asset for $11,057. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, r..
You are planning your retirement in 10 years. You currently have $169,000 in a bond account and $609,000 in a stock account. You plan to add $7,100 per year at the end of each of the next 10 years to your bond account. You are planning your retiremen..
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